Daily Commentary- 28 February 2018

Contact Merchant West Capital Markets on: (+2711) 305-9500 or treasury@merchantwest.co.za - USD / ZAR 11.7257 - EUR / ZAR 14.3473 - GBP / ZAR 16.3081 -

Economic Events:

28 Feb :SA Money Supply ;PPI - US GDP

01 March : US Initial Jobless Claims ; ISM Manufacturing data

02 March : UK PMI ( Construction )  - EU PPI

Market Commentary:

On the Domestic front:

South Africa's rand weakened more than one percent on Tuesday as investors took profit from a recent rally that sent the currency to new three-year highs overnight when new President Cyril Ramaphosa changed the finance minister in a cabinet reshuffle. At 19h13 the rand was 1.15 weaker at 11.6825 per dollar, recovering slightly after hitting a session-low 11.73, with investor focus switching to the first U.S. congressional testimony by new Federal Reserve Chairman Jerome Powell later in the session. "The rand's treading a narrow range between 11.50 and 11.75 and the long term trend remains rand strengthening. It needs to take out the 11.40 level to gain further," said strategist at IG Markets Shaun Murison. Nene said on Tuesday his predecessor's budget last week might not prevent further credit ratings downgrades, with Moody's due to make decision at the end of March. "That the rand has fallen more than 10 cents could be a signal that there is also a domestic catalyst. People in the market are wondering why some people retained their cabinet posts," Murison said. The rand slide was in-line with other emerging currencies as the greenback bounced back, while demand for risk currencies was also cooled by higher U.S. Treasury yields and the growing prospect of interest rate hikes by the Federal Reserve.

On the International front:

The dollar stood near a three-week high against a basket of currencies on Wednesday, after Federal Reserve Chairman Jerome Powell's upbeat views on the economy bolstered bets on further Fed interest rate hikes this year. Testifying before the U.S. House of Representatives Financial Services Committee, Powell acknowledged the economy had strengthened recently, a remark that prompted investors to increase bets on four rate increases in 2018. The Fed's last round of economic projections in December pointed to three rate increases this year. The dollar index, which measures the greenback against a basket of six major currencies, held steady 90.372,  after hitting a high near 90.50 on Tuesday, its strongest level in almost three weeks. "Personally, I wonder whether his (Powell's) comments were all that bullish on the economy, but that seems to be the market's interpretation," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

The euro held steady at 1.2230 against the greenback, after briefly slipping to 1.2221 its lowest since Feb. 9. The common currency has lost momentum since hitting a three-year high of 1.2556 on Feb. 16. The euro could be subject to potential swings in price, analysts said, as Italians prepare to vote in a national election on Sunday, and the leading political parties in Germany decide on a coalition deal that could secure Angela Merkel a fourth term as chancellor.

On the International Data front:

Euro zone sentiment fell as expected for the second month in a row in February from a multi-year high as confidence sapped from every sector except services, the European Commission said on Tuesday. European Commission survey data showed economic sentiment in the euro zone eased in February to 114.1 points from a revised 114.9 in January, having hit a 17-year high of 115.3 in December. The decline was the result of falling sentiment in industry, to 8.0 in February from 9.0 in January, in retail trade, to 4.3 from 5.2 and in construction, to 4.2 from 4.7. The European Commission confirmed its flash estimate for consumer sentiment had also fallen, to 0.1 from 1.4 points. Optimism only picked up in services, to 17.5 in February from 16.8 in January. Separately, the Commission's business climate indicator, which points to the phase of the business cycle, slipped to 1.48 in February, from 1.56 in January, and in line with the market expectation of 1.47.

New orders for key U.S. - made capital goods fall for a second straight month in January and shipments barely rose, suggesting a slowdown in business spending on equipment after robust growth in 2017. The Commerce Department said on Tuesday orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.2 percent last month after declining 0.6 percent in December. That was the first back-to-back drop in these so-called core capital goods orders since May 2016. Capital Goods were previously reported to have increased 0.4 percent in December. Overall orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, tumbled 3.7 percent last month as demand for transportation equipment plunged 10.0 percent. That was the biggest drop in six months and followed a 2.6 percent jump in December.

Our Range for the day: R11.6200 - R11.8200